The European Central Bank (ECB) had just announced cutting its main refinancing rate to 0.0 percent, cut deposit rate to minus 0.4 percent and extended its monthly asset purchase to $80 billion euros, effective from April. Dow Jones was up 100 points in the early trade, taking this as a positive news to cheer market.
But honestly, is the negative interest rate a positive news to the market? Is it now a new trend for the central banks to practice negative rates? What are the effects to the consumers and economy?
Negative interest rates is now practised in five countries- The ECB, Japan, Denmark, Sweden and Switzerland. Negative interest rates means the central bank will charge negative interest, meaning the money depositors deposit doesn't grow; in fact depositors need to pay regularly to keep money in the bank.
The purpose of practise negative interest rate is to stimulate economy, to encourage people and business to spend money instead of saving money. But hey, in long term, does it really help the economy? Will depositors cash out from banks and put the money under the pillow? Will it cause another banking crisis?
Let's see what the experts say.
